Sports Direct strikes deal to enter U.S. market

21 April 2017

British sportswear retailer Sports Direct has entered the U.S. market by buying 50 stores trading as Bob's Stores and Eastern Mountain Sports at a cost of $101 million (£78.94 million), it said on Friday.

Sports Direct, founded and controlled by Chief Executive Mike Ashley, said the acquired stores sell predominantly sports and casual wear, and outdoor and camping equipment and clothing.

"The acquisition is expected to complete in the first half of May 2017 and will provide Sports Direct with a footprint in U.S. bricks-and-mortar retail and a platform from which to grow U.S. online sales," it said.

Sports Direct purchased the stores through the bankruptcy process of Eastern Outfitters, the parent company of Bob's Stores and Eastern Mountain Sports.

The British company received approval for the deal from the Delaware Bankruptcy Court on Thursday.

The $101 million cost comprises loans advanced by Sports Direct to Eastern Outfitters before and as part of the Chapter 11 bankruptcy process, and purchases of the U.S. firm's debt.

Analysts criticised the move that they said would distract the company from efforts to lift its performance in Britain.

"We find the timing extraordinary," analysts at Peel Hunt wrote in a research note, changing their investment stance to "add" from "buy". "What is not required, in our view, is a major, and not inexpensive, distraction, 3,000 miles away."

Analysts at Jefferies, who have a "hold" stance, also questioned the timing.

"The incremental challenge of breaking into the U.S. coincides with the need for a drastic UK repositioning and for European stabilisation. This may be a step too far," they said in a note.

In the financial period to Jan. 28, 2017, the acquired businesses made a pretax net operating loss of $26 million.

Sports Direct has had a disastrous couple of years. Last year, British lawmakers condemned it for "Victorian" working conditions, investors and media criticised its corporate governance and trading was poor, with a series of profit warnings.

It warned in March that the devaluation of the euro against the dollar would dent its gross margin.

Sports Direct's shares, down 21 percent over the last year, were up 0.4 percent at 316.5 pence at 0713 GMT, valuing the business at 1.76 billion pounds.

The U.S. sporting goods sector is being tested by the advent of internet shopping and discount chains. Sports Authority, speciality golf retailer Golfsmith International Holdings and sporting goods manufacturer Performance Sports Group are among companies that filed for bankruptcy in 2016.